- A hard-start approach could force compliant firms to cease operations.
- The HKSFPA calls for a 6–12 month grace period for applicants.
- The association also raised concerns about the CARF framework.
Hong Kong’s proposal to tighten oversight of firms dealing in digital assets has raised concerns that compliant crypto managers could be forced to suspend or end operations.
The warning comes from the Hong Kong Securities and Futures Professionals Association (HKSFPA), which has highlighted the risks associated with introducing new licensing requirements without a transitional period.
The government is currently consulting on expanding the city’s regulatory reach to cover trading in virtual assets, advisory services, and fund management.
While the proposals aim to close supervision gaps, they could leave operating firms in limbo if licences are required from day one.
Concerns about hard-start timing
The HKSFPA’s primary concern is that a “hard start” would require all market participants to hold a valid licence before the new regime takes effect.
Without a grace period, firms awaiting approval could be prohibited from offering regulated services even if they have already submitted applications.
This would affect companies already operating lawfully under current rules but which have not yet secured a licence under the new system.
The association warns that licence assessments can take time, especially given the complexity of the sector, which could create regulatory bottlenecks and disrupt the market.
The group pushes for a grace period
In a formal submission, the HKSFPA has requested a six- to twelve-month transition window for firms that apply before the new regime comes into force.
The association believes this buffer would allow firms to continue operations while the Securities and Futures Commission (SFC) processes applications.
Without such a period, even organisations with strong compliance practices could face enforced closures due to administrative delays.
Application review is not rapid, and the risk of backlogs is significant, particularly as increasing numbers of firms prepare to enter a newly regulated environment.
Expanded oversight still under review
The proposed rules remain in the consultation phase and have no confirmed implementation date.
If adopted, they would represent a shift in how virtual asset services are governed in Hong Kong, extending oversight beyond trading platforms to include advisory and fund management services.
The industry body supports Hong Kong’s objective to raise regulatory standards for digital assets.
However, it cautions that rigid timelines could discourage institutional participation and slow the development of compliant crypto infrastructure.
Second warning highlights implementation risk
In a separate consultation submission made this week, the HKSFPA also raised concerns about the upcoming rollout of the Crypto-Asset Reporting Framework (CARF), which aligns with OECD recommendations.
While the association supports the policy direction, it again warned that inflexible execution could impose unintended operational and legal burdens.
Taken together, the two submissions reflect a wider industry message: regulation is welcomed, but implementation should not create obstacles that drive firms out of the market.